The first geopolitical casualty of COVID-19 is unfolding in real time: The fraying of the Saudi Arabian-Russian partnership.
Up until now, it was reasonable to expect the biggest geopolitical upsets from the virus would be related to China, and such outcomes still might unfold in the future.
Yet a coronavirus-instigated meltdown in the relationship between Saudi Arabia and Russia is on full display right now. It is already roiling oil markets in a way that could further upend the global economy, and has geopolitical implications well beyond energy markets.
Five years ago, a partnership between Russia and Saudi Arabia seemed inconceivable. The two countries had a history of mistrust going back to Saudi Arabian support for the Afghan mujahidin, and they differed significantly on important issues, most notably on Syria.
However, the 2014 to 2016 descent of oil prices focused the minds of rulers in Riyadh and Moscow, and the two governments put aside their frictions to focus on lifting oil prices. Russia took the lead in forming and sustaining OPEC+, a 10-member group of oil producers that for the first time coordinated with OPEC over global oil production cuts.
Although the collective efforts of OPEC and OPEC+ could not bolster prices as much as many producers wanted, they were critical to keeping them in a middling range where many producers could manage in the short term.
The coronavirus pushed the growing divergence of Russian and Saudi Arabian interests over oil prices to the forefront, and led to the dramatic falling-out between Riyadh and Moscow on Friday last week.
Slowing economic activity in China — the source of nearly two-thirds of oil demand growth last year — has led forecasters to sharply reduce projections of oil demand growth for this year.
Although the first quarter of this year has not yet ended, the International Energy Agency has cut its forecast for oil demand several times and now predicts a quarterly decline in demand for the first time in a decade. The outlook for the rest of the year looks similarly bleak.
Faced with this grim picture, Saudi Arabia proposed an additional production cut of 1.5 million barrels per day, on top of the most recent cut that had been in place since December last year.
Russia, which can balance its budget on a significantly lower price of oil, balked. It walked away from talks in Vienna and reportedly gave the 10 members of OPEC+ license to ramp up any “idle capacity” after the current agreement expires at the end of this month.
Saudi Arabia’s oil giant Aramco lost no time in responding, slashing the prices it would charge refiners buying Saudi Arabian crude next month by unprecedented amounts.
The biggest discounts were extended to European buyers in what can only be interpreted as an effort to undercut Russian oil sales.
Aramco publicly announced that it would increase its overall production next month from 9.7 million barrels per day today to between 10 million and 11 million; privately, Saudi Arabian officials have indicated that they are willing to explore their options for increasing production to 12 million.
Other members of OPEC that have been curbing their production, such as Iraq and the United Arab Emirate, will no doubt follow suit.
It is hard to overstate what this could mean for global oil markets. The tumble of oil prices to below US$30 a barrel in early 2016 was caused by a supply glut created in part by increases in US unconventional oil production and an OPEC strategy focused on market share instead of price.
The oil-market crisis the world is about to experience would be the product of a supply glut and dramatic demand destruction due to the coronavirus and its effects on global economic activity. The geopolitical effects could be massive. It could undercut the US shale industry, destabilize Saudi Arabia at a sensitive moment of reform, wreak havoc on the budgets of countries like Iraq, and create new hurdles to addressing climate change.
There is time for the two sides to come to a deal. It would require both Saudi Arabia and Russia to do what many negotiators do when they hit an impasse: Make the problem bigger, so there are more trade-offs and more win-win solutions.
It is possible that Moscow and Riyadh have been evaluating options largely through the lens of economics. Reaching a deal has understandably proven difficult, as Russia is much better-positioned than Saudi Arabia to weather a period of low oil prices, which it hopes will curb US shale production.
Still, Russia in particular should also look at this moment through a geopolitical lens. It has a lot more to lose than oil revenues.
The cratering of the Russian-Saudi Arabian relationship would likely reverse one of the most significant strategic trends in the Middle East of the last five years: the re-emergence of Russia as a key strategic actor in the region.
Russia parlayed the goodwill it created by cooperating with Saudi Arabia and other OPEC members on oil prices to expand its diplomatic, economic and military footprint in the region from its initial incursion into Syria in 2015.
To see how much has changed in a few short years, look at October last year, when Russian President Vladimir Putin made his first visit to Saudi Arabia in 12 years. He received full red-carpet treatment and was flanked by a large delegation of trade, defense and security officials.
Putin rolled up the visit with the announcement of more than 20 agreements worth more than US$2 billion, as well as a status-enhancing invitation to participate in the international investigation surrounding the attack on Saudi Arabian oil facilities.
Any US visitor to the region in the past several years has heard the argument many times that Russia — in contrast to the US — is demonstrating how a true partner acts.
Ultimately, Russia would find that pulling out the OPEC+ agreement at a time of such uncertainty in global oil markets would be a huge setback for its larger ambition to become a power in the region on equal footing to the US.
This realization might concentrate minds in Moscow and generate alternative proposals. For example, Russia very much wants to normalize the situation in Syria and begin rebuilding the country under Bashar al-Assad’s rule. The Saudi Arabian government has so far resisted entreaties to partner in these efforts.
Yet it would not be surprising if Russia leveraged its oil policy to convince Riyadh to once again recognize the Assad regime and reopen an embassy there, as other Gulf countries have already done. An invitation for Syria to rejoin the Arab League — from which it was ejected in 2011 — could follow.
Ultimately, Moscow and Riyadh could still pull global oil markets back from the brink. Doing so, would require both sides to widen the aperture through which they are looking at the problem and bring geopolitics explicitly into the conversation.
A failure to do so would be a jolt to the world, but not without its silver linings.
The first, which Washington should be thinking about how to exploit, would be an opportunity for the US — if it is so inclined — to regain some of the foothold it has lost in the Middle East, as regional actors reflect on what really constitutes a partner in that part of the world.
Meghan O’Sullivan is a Bloomberg Opinion columnist. She is a professor of international affairs at Harvard’s Kennedy School and is on the board of directors of the Council on Foreign Relations. She served on the US National Security Council from 2004 to 2007. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
In an article published in Newsweek on Monday last week, President William Lai (賴清德) challenged China to retake territories it lost to Russia in the 19th century rather than invade Taiwan. “If it is really for the sake of territorial integrity, why doesn’t China take back Russia?” Lai asked, referring to territories lost in 1858 and 1860. The territories once made up the two flanks of northern Manchuria. Once ceded to Russia, they became part of the Russian far east. Claims since then have been made that China and Russia settled the disputes in the 1990s through the 2000s and that “China
China has successfully held its Forum on China-Africa Cooperation, with 53 of 55 countries from the African Union (AU) participating. The two countries that did not participate were Eswatini and the Sahrawi Arab Democratic Republic, which have no diplomatic relations with China. Twenty-four leaders were reported to have participated. Despite African countries complaining about summit fatigue, with recent summits held with Russia, Italy, South Korea, the US and Indonesia, as well as Japan next month, they still turned up in large numbers in Beijing. China’s ability to attract most of the African leaders to a summit demonstrates that it is still being
Trips to the Kenting Peninsula in Pingtung County have dredged up a lot of public debate and furor, with many complaints about how expensive and unreasonable lodging is. Some people even call it a tourist “butchering ground.” Many local business owners stake claims to beach areas by setting up parasols and driving away people who do not rent them. The managing authority for the area — Kenting National Park — has long ignored the issue. Ultimately, this has affected the willingness of domestic travelers to go there, causing tourist numbers to plummet. In 2008, Taiwan opened the door to Chinese tourists and in
Taiwan People’s Party (TPP) Chairman Ko Wen-je (柯文哲) on Thursday was handcuffed and escorted by police to the Taipei Detention Center, after the Taipei District Court ordered that he be detained and held incommunicado for suspected corruption during his tenure as Taipei mayor. The ruling reversed an earlier decision by the same court on Monday last week that ordered Ko’s release without bail. That decision was appealed by prosecutors on Wednesday, leading the High Court to conclude that Ko had been “actively involved” in the alleged corruption and it ordered the district court to hold a second detention hearing. Video clips
RSS